Bond market indexing

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Bond market indexing was initiated in the early 1970s as a means by which to measure bond performance. Unlike stocks, which mostly trade on exchanges, bonds are primarily traded in the over the counter market. The first bond indexes were thus developed by investment bankers.

In 1973, Kuhn, Loeb[1] created three U.S bond indexes and Salomon Brothers introduced its Long-Term High-Grade Corporate Bond Index. Kuhn, Loeb was subsequently acquired by Lehman Brothers and the indexes became the Lehman indexes, which were to become the dominant U.S index family.[2] Salomon Brothers was subsequently absorbed by Citibank.[3]

By the early 1990s, U.S. indexes were being published by J.P. Morgan, Lehman Brothers, Citibank and Merrill Lynch[4] After the collapse of Lehman Brothers in 2008, Barclays Capital acquired the Global Family of Indices as part of its acquisition of Lehman Brothers' North American Capital Markets and Research groups. All legacy Lehman Brothers benchmark indices were rebranded as Barclays Capital Indices. Bank of America acquired Merrill Lynch on Jan. 1, 2009. The indices will remain as Merrill Lynch. Index providers S&P and Morningstar also provide bond indexes.

In 2002, a consortium of leading European and U.S. banks launched the Euro and Sterling iBoxx indexes. The iBoxx indexes are now the primary indexes used in Europe and the U.K. both for benchmarking and as the basis for exchange-traded funds (ETFs) and structured products.[5]

US bond market indexes are defined by two bond market factors: credit quality and term of maturity (short-term, intermediate-term, long term).

Table 1. US Bond Market Index Style Box
Credit Quality Short Intermediate Long
Trsy/Agency ST IT LT
Inv Grade Corp ST IT LT
Below Inv Corp ST IT LT

Major index providers

The major bond index providers are listed below:

Index provider Link
Barclays Capital Indices link Select Aggregate/Bond indices. Enable cookies to view.
FTSE Fixed Income and Currency Indices link
JP Morgan Bond Indices link
Markit iBoxx link Select Bonds from the menu.
Markit iBoxx Benchmark Indices link (direct link)
Markit iBoxx Liquid Indices link [6] (direct link)
BofA Merrill Lynch Bond Indices
Morningstar Bond Indexes link
S&P Fixed Income Indices link

Indices and funds

US market

Bond market Funds
Barclays Capital US Aggregate Bond Index Vanguard funds tracking Barclays Capital's indexes
Short Term US Taxable Bond Short Term US Taxable Bond Funds
Short Term US Tax Exempt Bond Short Term US Tax Exempt Bond Funds
Exchange-traded funds Bond ETFS

Index methodology

Index provider Link
Barclays link
FTSE Global Bond link
FTSE UK Gilts link
Markit Iboxx link
BofA Merrill Lynch Global Bond link
Morningstar link
S&P Fixed Income link[7]

See also

References

  1. See Wikipedia
  2. Single- Vs. Multidealer Fixed-Income Indexes Stephan Flagel and Neil Wardley, JOI May/June 2009.
  3. Saloman Brothers Wikipedia.
  4. Single- Vs. Multidealer Fixed-Income Indexes Stephan Flagel and Neil Wardley, JOI May/June 2009.
  5. Single- Vs. Multidealer Fixed-Income Indexes Stephan Flagel and Neil Wardley, JOI May/June 2009.
  6. Some bonds, like US Treasury securities, are easy to sell because there are many people interested in buying and selling such securities at any given time. These securities are liquid. Liquidity Risk, from Financial Industry Regulatory Authority
  7. Each fixed income series has its own methodology rulebook, accessed on each index page description. Example: S&P/BGCantor U.S. Treasury Bond Index

External links

Papers